We recently completed coaching on over $1b in deals for two tech companies globally. Two huge issues related to deal timing came out of the coaching that plague most sales organizations:
In fact, Harvard Business Review (HBR-8/2017) reports these same issues:
Decreased deal size and win rate results for an estimated $98 million per year in lost revenue for the average company.
Conversely, it represents a potential gain of over 27% in revenue per company if properly addressed.
How did we let this happen? Market pressures from Wall Street and investors, irrational competitive behavior, internal quarterly pressures to “make our numbers;” they all contribute to the problem.
But we aren’t helping the situation.
We are all familiar with end of the quarter pressures. To deal with the pressure, many salespeople wait for those quarter end (or month end) promos to make it easier to close deals. Even worse, we all know we’ve trained buyers to feed off this behavior. At Think! we not only consult to sales organizations but to buying organizations. We see and hear firsthand their clear strategies to leverage this end of quarter weakness and wait until the last minute for renewal discussions.
How Do We Fix It?
Plan for renewals; we call it T-12
Determine the impact of no agreement for both sides to get crystal clear on tangible value
Change the conversation from “here is our offer” to “here are three value creating going forward options”
Number 1: T-12 - Start Early!
For renewals, our goal is to begin planning at least 12 months out. It helps to model “what happens when a renewal goes well?” By looking at past successful renewals, we can understand what happened when and by whom. At intervals of 12-9 months, 9-6 months, 6-3 months and less than 3 months, what actions took place and who was involved both internally and externally?
What we found when we looked at these best practices were items such as “usage data;”
Is the customer using what we sold them?
If not, what do we have to do now to drive usage before renewal?
What has the value been of usage and prepare to begin leveraging that data early in discussions.
What customer stakeholders were involved when?
Who did we involve internally and at what stage?
What insight did they provide that can be leveraged for other renewals?
These actions are then mapped out and all renewals 12 months out are targeted and coached against best practice for all stages. The goal here is to make best practice common practice and install rigor and cadence for scale.
Number 2: Impact of No Agreement - Facts Not Tricks
Easily the most important step in reducing discount and improving deal quality is analysis and rigor around the impact to both sides if you don’t agree. A typical scenario looks this this….
It is the end of the quarter and the buyer says:
“Either you offer X discount, or I will choose someone* else!”
* Or do nothing or pursue another alternative.
The rep feels losing this deal will have them miss quota, so they head back to headquarters asking for additional concessions on behalf of the client to “save” the deal.
We have coached seasoned account management professionals from around the world who were shocked and panicked by these last-minute buyer tactics. However, there should be zero surprise here. As sellers, we should expect this buyer tactic with a very high probability. The only thing that should surprise us at the end of the quarter (or month) is for the customer to say, “Your value is so high you should really take up your prices!”
What we’ve found in most deals is when we do an analysis of the customer's alternative to buying from us, their alternative is not as great as they would have us believe. And the alternative can be just about anything, not just selecting a named competitor. Think about it this way, as an alternative to you or your competition, your client could also do nothing/stick with the status quo or even do it/build it themselves.
The only way we can take pressure off concessions is to understand our value. The only way we can understand our value is to know:
What are the customer's business needs at this moment?
What is their most likely alternative?
What are all the strengths and weakness of that alternative given their needs?
What gets “netted out” of this analysis is your value, which we define as:
How You Meet Customer Needs at Higher Confidence and Lower Risk Than an Alternative
It's not flowery statements or vague value propositions generated by marketing. It is the 2-3 reasons why what you’re proposing, at this given moment, is better than the alternative given your customer’s specific needs. It requires doing this analysis through the lens of understanding the needs for senior, mid-level and operational stakeholders, because it is likely that they are different. Taking the time to determine the criteria customers should be using to compare you to alternatives and in fact, knowing it better than they do, allows us to lead versus react.
This analysis also provides us with the confidence to hold tight on concessions. It is this value analysis that informs the stance to take on discussing commercial terms with the client. Of course we need to do this as early as possible, but even if we’re pushing for a month end close, we should never talk commercial terms without being backed up by this insight.
Number 3: Change the Conversation From Price to Value
This is one of those things that every consultant talks about and every sales leader wishes they could do. In the simplest sense, what we want to do here is to move from:
“Here is our offer.”
TO
“Here are three paths forward at three different investment and effectiveness levels.”
When we give “our offer” we are instantly set up to execute what mankind has been doing for millennia, that is to drive a customer response that has them asking us to “do better.” It is the natural flow of the process and will end up having us executing a price or discount conversation.
Once we execute our “no agreement” impact analysis for the customer, we will have a clearer idea of what risks are posed to them of missing their business goals by not choosing our solution. We can use these gaps as true value statements to “brand” each of the three paths forward. For example, perhaps the customer is attempting to reduce cycle time as a key initiative, and our analysis shows that reaching agreement with us provides a higher probability and lower risk for meeting that goal. This first solution would then be titled “reducing cycle time.”
Typically, these options, which we call Multiple Solution Options, run from tactical to strategic impact on the customer organization with corresponding commercial terms for each.
What we see in practice is that there is a very low probability that any of these initial three will be accepted. What it does do, however, is three things:
Changes the conversation from the price of one offer to the value of three different solutions.
Reduces the probability of zero-sum concessions in favor of value creating tradeoffs.
Broadens the conversation beyond price and acts as a sensitivity analysis for the needs of the buyers when we ask them to rank each solution most to least desirable.
What typically occurs after the “ranking” is that we are co-creating a fourth solution that has maximum value for us and the buyers.
Summary
When we execute the above three strategies on both renewals and quarter/month end deals, we successfully:
Change the conversation from price to value in about 90% of the deals
Reduce discounting
Increase the quality of the deal for both sides
Improve the human relationships
Increase closing percentages
Decrease time-to-close
Improve forecast accuracy
Now, do you consider this effective negotiation?
